Just the word bankruptcy can send shivers down your spine. It’s a boogeyman that scares off a lot of people and companies. This is understandable because bankruptcy is essentially a last resort and acceptance that an individual or organization is overwhelmed by their debts, but it’s also not the end of the world. After all, big-time CEOs sometimes get a bonus after their company files for bankruptcy so why can’t you bounce back?
Life after bankruptcy doesn’t have to be a stressful and fruitless time. There are certain timelines where you will essentially be able to resume normal activities and make financial commitments to get your life back on track. Let’s explore some of the ways life after bankruptcy can be a new adventure instead of a daunting time.
Establishing credit
Bankruptcy is going to hit your credit hard, but if you’ve gotten to the point of filing bankruptcy there’s a good chance your credit already isn’t in great shape. Your credit score heavily weighs your payment history and overall ability to pay off the financial commitments you’ve made, so it’s apparent why filing for bankruptcy and forgoing those commitments would have a negative impact.
The bankruptcy record will scare off many potential lenders, but Chapter 7 bankruptcy will fall off your credit after 10 years from the filing date while Chapter 13 bankruptcy remains on your credit for 7 years. The good news is you’ll be able to begin recovering your credit immediately. Your journey to an improved credit score begins right away, and you should be selective and realistic about the financial obligations you take on and are able to fulfill. It’s going to take time, but your credit score can bounce back fairly quickly as long as you avoid the mistakes that got you to bankruptcy in the first place.
Getting credit cards
This falls right in line with establishing your credit. There’s no restriction on applying for a new credit card after your bankruptcy filing, but you will likely be facing steep interest rates or secured credit cards. The high-interest rates are an attempt to hold you accountable for the commitment you’re making. A secured credit card will require you to pay money upfront in order to “secure” the line of credit you’re being given.
As long as you are realistic about your financial capabilities, the interest rate shouldn’t be an issue. Be reasonable and ensure consistent on-time payments and you’ll likely begin seeing offers for lower interest rates and higher credit lines.
Buying a car
Buying a car after Chapter 7 bankruptcy works similarly to getting a credit card. Once you have your discharge notice from the bankruptcy court, you will be able to proceed with buying a car just as you would prior to bankruptcy. Similar to the credit card information above, however, you will likely face steep interest rates unless you’re able to pay for the car in cash.
However, Chapter 13 bankruptcy works much differently. Because Chapter 13 bankruptcy doesn’t have an immediate end (normally playing out over the course of three to five years), you won’t have a discharge notice to provide lenders. Instead, you will need to report to the court that you need to purchase a vehicle and the court will review your bankruptcy plan before approving any purchases. It’s possible the court will deny you the ability to make a vehicle purchase. Once you do have discharge notice, though, you can proceed with purchasing a vehicle.
Buying a house
A home is a massive financial undertaking, so the government has specific guidelines before you can get back into the housing market. The Federal House Authority (FHA) requires you to wait two years after you receive your discharge in Chapter 7 bankruptcy and one year after you receive your discharge in Chapter 13 bankruptcy. It’s important to remember that the Chapter 13 bankruptcy process takes several years, so it’s one fewer year post-discharge than Chapter 7 bankruptcy but will be a much longer timeline in reality.
These guidelines are in place not only to protect the FHA but also to protect you. Real estate costs upwards of several hundred thousand dollars for realistic homebuyers, and you’re not generally in a position to immediately purchase a home after bankruptcy. It would also look bad on the court if you discharged a large portion of your debt just to immediately turn around and take on another significant debt like a mortgage.
Work with your attorney
The best way to recover from bankruptcy is to take it slow and be realistic. Work with a trusted bankruptcy attorney to work through the process and understand the costs and guidelines associated with life after bankruptcy.
At Velazquez Consumer Law, we provide solutions and shield you from surprises. We ensure all our clients are aware of the consequences and benefits of going through bankruptcy. If you’re ready to take the next step, contact us today.
Velazquez Consumer Law
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